Remortgage guide - When’s the right time to remortgage?
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When’s the right time to remortgage?

As a homeowner, you’re inundated with information about financial products that might be right for you – and a lot of that information will centre around remortgaging.

This marketing info is designed to tempt you – from better rates, to home improvements and lifestyle enhancement, there always seems to be a lot of reasons to consider changing the mortgage product you’re using – but is it right for you?

Your mortgage is likely to be the biggest financial commitment you’ll ever make, so making sure it’s exactly right for you is important. As such, we’ll help you to pose a few questions that’ll help you decide if remortgaging might be right for you, including:

  • How does remortgaging work?
  • What are some remortgaging pros and cons?
  • Do my options change if my credit rating is poor?

Who can help you decide?

While this article covers some interesting questions that might help you decide if remortgaging is right for you – it is not a substitute for talking to a qualified financial advisor such as The Loans Department. To make sure there’s no small print you’ve missed, you should always check major financial decisions with someone who’s qualified to offer advice.

What is remortgaging?

When you remortgage your property you’re simply taking out a new loan that’s secured against your house.

This will mean your previous loan is paid off, and the new loan set up – often with an adjustment to interest rates, the way the loan is repaid, or how much the monthly repayment will be. If you don’t have a current mortgage loan against your house, remortgaging will simply release some of the equity you have in your home – and repayments will begin soon after.

What are the pros and cons of remortgaging?

Remortgaging isn’t just about fancy marketing that promises a lot – being smart with the mortgage products you use can save you a LOT of money, especially considering mortgages are normally repaid over 25 years or more.

Take a look at some of the pros and cons relating to remortgaging your home.

Pros

You might find a better interest rate

Mortgage interest rates frequently change, both for marketing purposes – and sometimes, because of the specific conditions of the mortgage product you currently have. Some people are paying their lender’s Standard Variable Rate (SVR) after their initial attractive offer has come to an end, other people may have signed up for their mortgage during a period when lenders were unable to offer their most attractive rates.

Whatever the reason, there’s a chance that remortgaging may drop your interest rate, leaving you paying significantly less over the full mortgage term.

You can continue a great deal

There are instances when the end of your term on a fixed mortgage interest rate might represent a large increase in your monthly repayment amount – but that can sometimes be avoided with the right remortgage. If you’re reaching the end of your deal, talking to an advisor can see that you move to a similar (or better) product.

You could cap your interest rate

If you’re worried about interest rates increasing, you’re very definitely not alone. Remortgage providers may be able to offer you a product that’s designed to put an upper limit on the amount of interest you’ll pay – meaning you can lock your repayments to a certain amount for a set period of time.

You can find some payment flexibility

If your mortgage product is currently very rigid, you may be able to find a lender who offers more flexible terms – in some cases, offering underpayments, overpayments or payment holidays.

You can release some money from your home

If the value of your home has gone up significantly since you last mortgaged, you may find that a remortgage allows you to release some money while maintaining a good interest rate. This is often the case when people have done significant extension or renovation work on their home.

Cons

You may have to pay some penalties

Remortgaging can often cost – and it’s not always because of the fees around setting up a new product.

You may find that your previous mortgage product comes with repayment penalties – a way of the lender ensuring they do not lose out if you want to sell or move away from using them before a set period has elapsed. You might save money with your new deal, but it’s important to work out that remortgaging will mean you’re still better off, even if you’ve had to pay penalties.

It isn’t always worth it

It’s not just mortgage redemption penalties that mean remortgaging might not make financial sense – sometimes, people with just a small amount left to repay will find remortgaging doesn’t work out in their favour.

If you have less than £50,000 remaining on your mortgage, it’s worth making sure you’ll still come out financially better off – as the fees involved with your new mortgage may eat into the monetary benefits you see if you change.

You might struggle to find a lender if your house value has dropped

It’s not just your personal financial health that can impact your chance of getting a good remortgage deal – occasionally, a reduction in your houses value can mean a less favourable interest rate is offered. Checking the value of your home before you proceed will give you an indication of whether or not a lender is still likely to offer you a competitive deal.

Can I remortgage with a poor credit rating?

A person’s credit rating is subject to change at any time – and yours may have changed since you took out your mortgage product.

In theory, you may well still be able to remortgage, even if your credit rating is poor – however, your circumstances may stop you from getting the very best deal. If you feel like your credit rating has taken an impact since you got a mortgage (or last remortgaged) – it’s worth doing the maths to ensure you’re getting a deal that’s right for you.

First, check that the lender you’re hoping to borrow from is happy to offer the product – if they are, find out if the advertised interest rate still applies, or, if not, what interest rate they’ll be able to offer you.

Talking to a mortgage advisor is part of the strict lending criteria that all lenders must abide by – when you do, it’ll give you a chance to discuss your current financial situation. In return, the mortgage advisor you’re talking to may well be able to offer some product suggestions that will help you to get back in control of your finances.

 

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